Goldman Sachs avoiding the 50p rate proves the folly of cutting it too soon

The 45p rate gets an artificial boost while 50p is made worse in comparison.

Goldman Sachs is considering whether to defer bonuses for its employees into the new tax year, starting 6 April, in order to avoid the 50p tax rate.

The Guardian's Jill Treanor reports:

A number of banks are known to have considered whether to make the move, which would save their top employees thousands of pounds. But City sources believe many of them have rejected the idea to avoid any negative publicity in the wake of the row surrounding corporation tax paid by Starbucks in the UK.

The Wall Street firm – which publishes its full year results on Wednesday and tells staff their bonuses for 2012 shortly afterwards – is not thought to be considering changing the way the bonuses for 2012 are handed out. The proposal being considered would benefit parts of bonuses deferred from the years 2009, 2010 and 2011, which are due to be handed to staff this year in the form of shares.

The move underlines the lack of evidence available that the 50p rate actually hurt revenues. HMRC's analysis in March last year determined that the optimal tax rate was 48 per cent, a figure which 1) didn't justify cutting the rate to 45 per cent and 2) was only derived due to a specific statistic – TIE, taxable income elasticity – being given a value of 0.45. Given studies cited by HMRC for TIE showed it being anywhere from -0.6 to 2.75, there's rather a lot of uncertainty in that analysis.

But the bigger problem for evidence of the tax cut's effects is that, in cutting the 50p rate so rapidly, the Chancellor destroyed the possibility that we might actually get some useful data. The most effective way to avoid the tax is to shift income forward or backward. As a result, the first year it was in operation revealed that £6.6bn of taxable income had been shifted forward by a year; and we now know that this year, the last it will be in operation, a significant chink of income will be shifted back to the 2013/14 tax year.

Add in the fact that even HMRC assumed that some income in 2011/12 will have been declared in 2009/10, and some more will have been coincidentally forestalled to 2012/13 (when it could be forestalled further to 2013/14), and it is clear: there has not been a single year when a "normal" amount of tax was paid at the 50p rate. Every year it was in operation will have resulted in an artificially depressed take.

Similarly, the 45p rate will, for the first few years of its operation, have an artificially boosted take. It will look far more effective at discouraging tax avoidance than it actually is.

Consider this a warning, then: 2014 will see a lot of attempts to misuse data to prove a point. Don't take it at face value.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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Birmingham Labour members were almost disenfranchised, until Corbyn intervened

Newer members were to be denied a say in selecting candidates.

For decades, Labour members in Birmingham have had to wait for a year after joining the party to vote to select local candidates – unlike the six-month national rule. New ward boundaries for Birmingham City Council, the largest local authority in Europe, will be contested for the first time next year during an all-out election – and a reduction from 120 to 101 members means every Labour candidate, including sitting councillors, must be selected.

However, Labour’s Birmingham Board decided that to vote in the upcoming selection meetings, members must have been in the party for a year prior to their call for candidate applications in 2016. As a result, if you wanted to have a say, the cut-off date for being a party member was July 2015: two years ago.

It took the intervention of Jeremy Corbyn turning up at an obscure local meeting in order to vote for this two-year cut-off date to be replaced by a six-month minimum period. This has enfranchised the vast majority of Labour members, many of whom were increasingly annoyed with the original decisions taken by the Birmingham Board.

One of those who would have been disenfranchised if the board had had its way is Birmingham councillor Liz Clements, who re-joined the party as soon as Corbyn was first elected leader in 2015. Twenty years ago, she was an Oxfordshire County Councillor, and, in 1999, a European parliamentary candidate. While studying at at Oxford, in the same year as Yvette Cooper, she chaired the university Labour Club for a term in 1989. This year she was selected to contest the marginal Hall Green ward in a by-election, and, had the original rules been in place, she would have been unable to vote for herself (or anyone else) to be selected for council elections next year.

She says: “For me it was simply a matter of fairness and democracy. I couldn’t understand why the national rule wasn’t being applied. I found it very odd that I could seek selection as a councillor and get elected before I’d be eligible to vote in a selection meeting myself.”

She feels the two-year cut-off would have sent a message to new joiners and re-joiners alike that they were “second-class members”.

"During the general election we succeeded in firing up our membership with enthusiasm for the Labour manifesto and for our Labour candidates – people came out to campaign in large numbers. The proposed freeze date was divisive and would have discouraged newer members from campaigning in next year’s council elections.”

Before the Birmingham Board met, a large number of branch and constituency-level Labour groups passed motions calling for the freeze date to be scrapped. Councillor Clements was not at the Board’s meeting, so can’t comment on why they chose to ignore the members. From speaking with other party members, it's clear there was a widespread belief that this was done deliberately so unpopular councillors could cling to power.

With every ward holding selection meetings, there is am opportunity to clear out the dead weight and for fresh talent to revitalise the council, which is currently struggling to keep up with the austerity cuts imposed by central government. Some sitting councillors are retiring or facing scrutiny of their records, and may not even be shortlisted for selection. The Birmingham Board, after all, can veto any candidate before selection, including current councillors with poor attendance and casework records.

It therefore isn’t surprising that Councillor Clements doesn’t believe these rule changes will actually result in different candidates being selected. For her, it was about Labour values. “Corbyn listened to members and asserted the importance of democracy, fairness and inclusion”.

One reason it is arguable the selected candidates would remain the same is that Birmingham is struggling to attract enough people to stand for selection in the first place. There is, particularly, a shortage of women putting themselves forward. Liam Byrne MP is understood to have suggested relaxing the Labour Party rule demanding that at least one woman in selected in multi-member seats. It would be an extremely unpopular decision with many members, but there aren’t currently enough women candidates for the 32 two-member wards.

Councillor Clements says we should stick to the party’s rules as they are, but we need more women and BAME candidates. There are other options being suggested; re-opening nominations if no women have declared an interest in time, allow some wards to select two men if a neighbouring single-member ward selects a woman, relax the rule entirely, demand local parties re-advertise the space and find women candidates, or something else entirely.

Selections are underway, but most will take place in September, as many wards now need to find larger venues to hold the meetings. This will give candidates eight months to campaign before the Birmingham City Council elections next May.

Its current (and likely future) leader, John Clancy will almost certainly remain in post. Results from the general election showed many areas, previously thought to be unwinnable or marginal for Labour, have become either safe or eminently winnable. If Labour can keep itself above 40 per cent in the polls, we may well see a huge influx of new councillors representing people across Birmingham. The difference now Corbyn has stepped in, is that there is a real chance most candidates and councillors will be united by a belief in Corbyn, and his manifesto.

David Barker is a writer and journalist based in Birmingham, and press officer for Bournville Labour Party